Emerging economy Renewable energy Oil and coal Developed Renewable energy (10,10) (4,12) economy Oil and coal (12,4) (6,6) Figure 13 Payoff matrix for energy sources ($US billion) In a world comprising two economies, each has to choose whether to use renewable energy in its production processes or use traditional fuels, such as oil and coal. The traditional fuels are cheaper and so keep down production costs for indivídual firms. However, their use is associated with the increasing incidence of extreme weather events causing devastating and costly natural disasters across the world. The choices the two economies face may be set out as an economic game with the payoff matrix shown in Figure 13. Assume an international agency now imposes a fine of $1 billion that reduces the payoff to economies that choose oil and coal. Find the equilibrium for this revised game. What is the payoff to the emerging economy at this equilibrium? %24 billion

Emerging economy Renewable energy Oil and coal Developed Renewable energy (10,10) (4,12) economy Oil and coal (12,4) (6,6) Figure 13 Payoff matrix for energy sources ($US billion) In a world comprising two economies, each has to choose whether to use renewable energy in its production processes or use traditional fuels, such as oil and coal. The traditional fuels are cheaper and so keep down production costs for indivídual firms. However, their use is associated with the increasing incidence of extreme weather events causing devastating and costly natural disasters across the world. The choices the two economies face may be set out as an economic game with the payoff matrix shown in Figure 13. Assume an international agency now imposes a fine of $1 billion that reduces the payoff to economies that choose oil and coal. Find the equilibrium for this revised game. What is the payoff to the emerging economy at this equilibrium? %24 billion

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Comparative Advantage and Absolute Advantage Analysis

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Q18

Emerging economy
Renewable energy
Oil and coal
Developed
Renewable energy
(10,10)
(4,12)
economy
Oil and coal
(12,4)
(6,6)
Figure 13 Payoff matrix for energy sources ($US billion)
In a world comprising two economies, each has to choose whether to use renewable
energy in its production processes or use traditional fuels, such as oil and coal. The
traditional fuels are cheaper and so keep down production costs for indivídual firms.
However, their use is associated with the increasing incidence of extreme weather
events causing devastating and costly natural disasters across the world. The choices
the two economies face may be set out as an economic game with the payoff matrix
shown in Figure 13.
Assume an international agency now imposes a fine of $1 billion that reduces the
payoff to economies that choose oil and coal. Find the equilibrium for this revised
game. What is the payoff to the emerging economy at this equilibrium?
billion
( Previous page
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